09 October 2006

Why Oil Producing States Are So Often Bad States

Many of the oil-producing states in the world are notoriously immature politically, characterized by authoritarian governments, chaos, or both. Why would a blessing of natural resources so often lead to a curse of bad governments?

The most basic factor of production, or source of wealth, is land. Land refers to all natural resources, from oil to timber to acreage used for ranching or farming. When markets first emerge in a community they are characterized by trade of natural resources - whether it is pepper from the Orient to medieval Europe or gold from the New World to the Orient.

Land is a gift of God. Weather and soil conditions determine crop yields. Those who find themselves atop oil fields or gold mines are more likely to point to God's provision than chance. When land is the basis of wealth, as it is in the early stages of social evolution, religion is a strong partner to commerce and the state.

The state is key to this stage of economic development because it is the state that defines and enforces property rights, lending order to a process that could easily devolve into chaos. Given that communities at this stage of development have been characterized by tribal customs more than national law, the state competes with local counts, barons, or tribal elders for authority and this authority ultimately comes from religious standards or overwhelming force (or some combination).

Power is asserted at this stage of development. Whoever is able to assert power has wealth because economic wealth accrues from control over natural resources.

Once communities reach the next stage of development - dependent on capital that requires the emergence of financial markets and technological development - individuals matter more and power is dispersed from the state to capitalists. Political and economic power are jointly dispersed in the interplay of progress. (In England and the U.S., it seems as though the political power was dispersed before, or along with the economic power; in Singapore and China, it seems as though the economic power has been dispersed before political power.)

Until states move from dependence on natural resources to dependence on capital (and then later the knowledge workers who are key to an information economy), political power is a crude instrument that almost always overlooks the need for individual autonomy. And given that force is key to ownership - as opposed to creativity or knowledge as might be key to ownership in a more advanced economy - literal battles for control will define politics. And given that the natural resources are so obviously gifts of God, religion often colors these brutal struggles for control. And finally, given that in the West (Jewish, Muslim, and Christian communities) religion is the force that dominated before the emergence of markets and the state, the battles to define the community are between secularists who follow market forces ("but people pay for rap music") and religious leaders who follow precepts ("but pop culture is immoral and should be regulated or banned").

When the basis of wealth in a country is land, it probabaly will be governed with brute force. If these oil-producing states had to rely on the creativity and initiative of their people for wealth, they'd be forced to govern more liberally.